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Performance and Risks of Open-End Life Settlement Funds

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abstract In this paper, we comprehensively analyze open-end funds dedicated to investing in U.S. senior life settlements. We begin by explaining their business model and the roles of institutions involved in the transactions of such funds. Next, we conduct the first empirical analysis of life settlement fund return distributions as well as a performance measurement, including a comparison to other asset classes. Since the funds contained in our dataset cover a large fraction of this relatively young segment of the capital markets, representative conclusions can be derived. Even though the empirical results suggest that life settlement funds offer attractive returns paired with low volatility and are virtually uncorrelated with other asset classes, we find latent risk factors such as liquidity, longevity and valuation risks. Since these risks did generally not materialize in the past and are hence largely not reflected by the historical data, they cannot be captured by classical performance measures. Thus, caution is advised in order not to overestimate the performance of this asset class.
   
type journal paper
   
keywords Life Settlements, Open-End Funds, Performance Measurement, Risk Analysis
   
language English
kind of paper journal article
date of appearance 3-2012
journal Journal of Risk and Insurance
publisher Wiley-Blackwell (Malden, Mass.)
ISSN 0022-4367
ISSN (online) 1539-6975
DOI 10.1111/j.1539-6975.2011.01414.x
volume of journal 79
number of issue 1
page(s) 193-230
review double-blind review
   
citation Braun, A., Gatzert, N., & Schmeiser, H. (2012). Performance and Risks of Open-End Life Settlement Funds. Journal of Risk and Insurance, 79(1), 193-230, DOI:10.1111/j.1539-6975.2011.01414.x.